Business, the economy and equal opportunities will all suffer if elite universities grab the bulk of postgraduate research money, according to a report launched today.

The report by the Million+ thinktank, supported by 28 post-92 universities, follows calls from leading research universities for PhD funding to be concentrated in fewer institutions than it is now.

In a speech last week to the 8th annual postgraduates national policy conference in London, Paul Wellings, chair of the 1994 Group of research-intensive universities and vice-chancellor of Lancaster University, said: "Funding should be more concentrated than it currently is in order for government investment to be channelled as effectively as possible. This would still allow all institutions to provide PhDs if they wish, but provision below the quality threshold would be reliant on fee income rather than government funds."

But the Million+ report warns that if this happens "there is a real risk that the UK will lose its competitive edge in the international [undergraduate and postgraduate] marketplace, with serious economic consequences for universities and the UK economy".

Debate over the issue has been sparked by the independent review into the future of postgraduate education, announced last summer by the business and skills secretary, Lord Mandelson, and due to report this spring. The fear that public spending cuts will slash the overall research money available has intensified feelings on both sides.

Les Ebdon, chair of Million+ and vice-chancellor of the University of Bedfordshire, calls assertions by elite universities that postgraduate productivity is better in their institutions and therefore more worthy of funding as "completely unevidenced" and "mostly self-serving".

The Million+ report shows that modern, or post-92, universities deliver 37% of all postgraduate provision in the UK, 30% of all international postgraduate provision and almost 10% of the doctorates studied by international students. Far from being a "bolt-on", it says, postgraduate provision is a central part of their activities.

It argues that concentrating PhD funding away from these universities harms innovation because these are the institutions that tend to be most successful at identifying new curriculum areas for both undergraduate and postgraduate study – areas that often prove vital for the economy.

Diversity also suffers because post-92 universities, which are often more closely tied to their local communities and offer more flexible ways of delivering courses, attract the majority of students from ethnic minorities and lower social classes. Students who need to study close to home for family or economic reasons depend on provision of postgraduate research degrees at their local university, it argues.

Ebdon says post-92 universities have a vital role in boosting the numbers of home students who study for postgraduate degrees, which has a knock-on effect both for universities and the economy in general. "We face quite a looming crisis with the academic profession in this country," he says. "It's an ageing profession of academics, with a sharp decline coming in the next few years, and in certain subject areas we aren't producing enough PhDs from home students to replenish the stocks. It's a mistake to think Russell Group and 94 Group universities are comprehensive. They are very skewed to certain subjects." He says the creative arts in particular would suffer if PhD output from post-92 universities was reduced.

However, in January, the 1994 Group published its own analysis of postgraduate provision at UK universities, which found a large drop in productivity between research-intensive universities and the rest of the sector in terms of PhD completion rates and the relationship between completions and the number of academic staff.

Paul Marshall, executive director of the 1994 Group, says that while postgraduate teaching provision is a mass-market activity that should be supported at all universities, the same is not true at PhD level. "The quality of infrastructure around research teams seems to be an important factor in producing PhDs," he says.

Wendy Piatt, director general of the Russell Group of leading research-intensive universities, says that when resources are tight, it makes sense for funding to be concentrated on the universities that can deliver the best postgraduate research provision on a suitable scale.

"Postgraduate research students cannot thrive in isolation – their programmes must be underpinned by excellent research," Piatt says. "They need to experience a demanding and stimulating research environment reflecting the latest developments in their field, including access to first-rate facilities, infrastructure and expertise. Doctoral students benefit greatly if they are working in a critical mass of researchers and fellow postgraduates in their own and other disciplines."

While Ebdon concedes that some large scientific research projects do need large-scale infrastructures, he suggests that this means they are often better carried out through national or international collaborations between teams of academics from various kinds of institutions. In any case, he says, many projects do not need this kind of infrastructure. In fact, he suggests, PhD students often get more of their supervisor's time and easier access to research facilities in institutions where competition for them is less fierce. In addition, the researcher experience can be better in these institutions because they work more closely with industry, he says, and therefore have access to the latest equipment and applied thinking.

Students are also wary of accepting the argument of research-intensive universities that they necessarily offer a better postgraduate student experience.

The National Union of Students' vice-president for higher education, Aaron Porter, says: "We are concerned that many universities, and therefore many students, would lose out under these proposals. For instance, some people choose to take a PhD at a university close to home because of work or family commitments. The closest university might not happen to be a member of the Russell Group or 1994 Group."

Finally, the Million+ report rejects the argument that concentrating research cash on fewer institutions would represent value for money. It states: "Once the lower levels of research funding received by modern universities are taken into account, pound for pound these universities are more productive in their delivery of postgraduate provision, which has always been reliant on the quality of teaching and supervision rather than on intensity or critical mass of research funding."